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TMI Blog1971 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction in question was exempt under section 5(1)(xiv) of the Gift-tax Act? " The assessee was carrying on a business in rice and paddy in the name and style of K. Ganapathi Moothan. He owned two rice mills and had also taken on lease another rice mill. On April 14, 1962, he converted this proprietary concern into a partnership taking his three major sons, G. Kannan, G. Krishnankutty and G. Raghavan, as partners by a deed dated April 14, 1962. The capital of the partnership was Rs. 90,000, of which the assessee contributed Rs. 60,000 and the three sons Rs. 10,000 each. The assessee made a gift of Rs. 20,000 to two of his sons, Krishnankutty and Raghavan, and it was this amount that was brought by them as capital in the partnership. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business itself was gifted it could not be said that the gift was made in the course of carrying on the business. However, he allowed a reduction in the valuation of the goodwill, which was determined at Rs. 28,830 as against Rs. 76,968 as estimated by the Gift-tax Officer. Against this order the assessee filed an appeal to the Appellate Tribunal ; and the Tribunal held that there was no gift in view of the fact that the recitals in the partnership deed would show that the transfer of the goodwill was for consideration. According to the Appellate Tribunal the agreement to share the losses by all the three partners and the agreement to contribute skill, labour and experience constitute consideration in money's worth. The Tribunal also held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, mortgage, charge, easement, licence, power, partnership or interest in property ; . . . . (d) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person. " The assessee was carrying on the business in rice milling and paddy as also in grocery before he entered into the partnership. He had a goodwill in respect of that business when he entered into the partnership. That goodwill is not seen to have been transferred specifically by him to the partnership. But he could not have retained the goodwill with himself after having taken his sons as partners in the business, because goodwill was incidental to the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributed Rs. 10,000 each ; and, therefore, the transfer would not amount to a gift. This is not correct. The contribution made by the partners was towards the capital of the partnership. The assessee specifically transferred the two rice mills in favour of the partnership by the partnership deed and received consideration for the same from the partnership, but ploughed it back in the form of his contribution to the capital of the firm. But, so far as the goodwill is concerned, it is not seen that the assessee received any consideration. It cannot be disputed that the goodwill belonged to him before the formation of the partnership; and if by the partnership the goodwill became the property of the firm, that can only be by virtue of the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofession or vocation. " We had occasion to consider the scope of this section in I.T.R. No. 14 of 1969 . In Commissioner of Gift-tax v. Dr. George Kuruvilla the Supreme Court observed: " We are unable to agree with the views so expressed. The donor is exempt under section 5(1)(xiv) from liability to pay tax only if the gift is in the course of carrying on a business, profession or vocation and is made bona fide for the purpose of such business, profession or vocation. The clause does not enact that a gift made by a person carrying on any business is exempt from tax, nor does it provide that a gift is exempt from tax merely because the property is used for the purpose for which it was used by the donor. Without deciding whether the test o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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